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The EITC, Tax Refunds, and Unemployment Spells


  • Sara LaLumia


The earned income tax credit generates large average tax refunds for low-income parents, and these refunds are distributed in a narrow time frame. I rely on this plausibly exogenous source of variation in liquidity to investigate the effect of cash on hand on unemployment duration. Among EITC-eligible women, unemployment spells beginning just after tax refund receipt last longer than unemployment spells beginning at other times of year. There is no evidence that tax refund receipt is associated with longer unemployment duration for men, or that the longer durations for women are associated with higher-quality subsequent job matches. (JEL H24, J64)

Suggested Citation

  • Sara LaLumia, 2013. "The EITC, Tax Refunds, and Unemployment Spells," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 188-221, May.
  • Handle: RePEc:aea:aejpol:v:5:y:2013:i:2:p:188-221 Note: DOI: 10.1257/pol.5.2.188

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    References listed on IDEAS

    1. Ian W. H. Parry & Margaret Walls & Winston Harrington, 2007. "Automobile Externalities and Policies," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 373-399, June.
    2. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
    3. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, vol. 101(4), pages 1375-1409, June.
    4. Kenneth A. Small & Kurt Van Dender, 2007. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-52.
    5. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
    6. Thomas Klier & Joshua Linn, 2012. "New‐vehicle characteristics and the cost of the Corporate Average Fuel Economy standard," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 186-213, March.
    7. Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
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    Cited by:

    1. Andrew Foote & Michel Grosz & Ann Stevens, 2015. "Locate Your Nearest Exit: Mass Layoffs and Local Labor Market Response," Working Papers 15-25, Center for Economic Studies, U.S. Census Bureau.
    2. Mesén Vargas, Juliana & Van der Linden, Bruno, 2017. "Is There Always a Trade-off between Insurance and Incentives? The Case of Unemployment with Subsistence Constraints," IZA Discussion Papers 11034, Institute for the Study of Labor (IZA).
    3. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    4. Blaufus, Kay & Hechtner, Frank & Möhlmann, Axel, 2014. "The effect of tax preparation expenses for employees: Evidence from Germany," arqus Discussion Papers in Quantitative Tax Research 157, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Sara LaLumia & James M. Sallee & Nicholas Turner, 2015. "New Evidence on Taxes and the Timing of Birth," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 258-293, May.
    6. repec:hrv:faseco:34330197 is not listed on IDEAS
    7. Laura Tach & Alicia Eads, 2015. "Trends in the Economic Consequences of Marital and Cohabitation Dissolution in the United States," Demography, Springer;Population Association of America (PAA), vol. 52(2), pages 401-432, April.
    8. Philippe Wingender & Sara LaLumia, 2015. "Income Effects in Labor Supply: Evidence from Child-Related Tax Benefits," Department of Economics Working Papers 2015-04, Department of Economics, Williams College.
    9. Can Cui, 2017. "Cash-on-hand and demand for credit," Empirical Economics, Springer, vol. 52(3), pages 1007-1039, May.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search


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